September 30, 2019 1 IDEA RESEARCH APL Apollo Tubes – The Pipe(d) Piper Rating BUY Price Rs 1375 Target Price Rs 1792 Implied Upside 30.3% Sensex 38,822 Nifty 11,512 Bloomberg Code APAT:IN Reuters Code APLA.NS (Prices as on September 27, 2019) Tracking Data Market Cap (Rs bn) 33.4 Shares O/s (m) 24.3 3M Avg. Daily Value (Rs m) 86.0 Major Shareholders Promoters 37.1% Domestic Inst. 12.6% Public & Others 50.3% Stock Performance (%) 1M 6M 12M Absolute 4.2 (5.3) 1.7 Relative 0.0 (6.4) (3.7) How we differ from Consensus EPS (Rs) PL Cons. % Diff. 2020E 106.7 95.6 11.6 2021E 149.3 130.6 14.3 Company Initiation Monday, September 30, 2019 Shailee Parekh [email protected]+91-22-66322302 Heet Vora [email protected]+91-22-66322274 APL Apollo Tubes (APAT) is the largest producer of Electric Resistance Welded (ERW) Steel Pipes and Sections in India with a manufacturing capacity of 2.55 mn MTPA. With pan India manufacturing capacities and extensive distribution network, they are able to cater to customers effectively and efficiently (95% of the revenues come from the dealer-distributor network). APAT has always been a pioneer in new technologies & innovative products which has helped it grow faster than its peers. They also invest continuously in enhancing brand awareness and develop the brand which in turn is creating entry barriers for new entrants. Demand for ERW pipes is expected to grow at 8-10% CAGR on back of 1) substitution of wood by steel, 2) government push to boost consumption, infrastructure development, construction & agriculture, 3) shift of market share from unorganized to organised players and 4) development of new age applications such as agricultural implements, solar tracking systems, gym/sports equipments, construction equipment and automobile applications. Coupled with enhanced capacities through in house expansion and acquisitions of Shankara and Apollo Tricoat plants, we expect volumes to grow at 2 – year CAGR of 19%. These acquisitions will help will help it to move up the value chain in existing high margin pre-galvanised (GP) and galvanised (GI) pipes segments and also foray into new, value added segments such as doors & designer pipes which will result in per ton EBITDA to improve from Rs 3,245- FY19 to Rs 3,500-FY21E. Over the next 2 years, 1) we expect earnings CAGR of 56.3%, 2) comfortable debt-equity ratio of 0.3x, 3) robust RoE/RoCE of 26.9%/32.7% and 4) high free cash generation of Rs2,638m which not only makes it attractively valued at PER of 12.9x FY20E and 9.2x FY21E earnings but also justifies a premium valuation. We initiate coverage with a BUY and TP of Rs 1792 (12x FY21E EPS). Key financials (Y/e March) 2018 2019 2020E 2021E Revenues (Rs m) 53,348 71,523 83,574 100,124 Growth (%) 17.4 34.1 16.8 19.8 EBITDA (Rs m) 3,710 3,928 5,257 6,648 PAT (Rs m) 1,581 1,482 2,587 3,621 EPS (Rs) 66.3 62.2 106.7 149.3 Growth (%) 8.4 (6.2) 71.7 39.9 CEPS (Rs) 88.7 89.1 142.7 186.7 Net DPS (Rs) 12.0 14.0 13.8 13.8 Profitability & Valuation 2018 2019 2020E 2021E EBITDA margin (%) 7.0 5.5 6.3 6.6 RoE (%) 20.5 16.5 24.1 26.9 RoCE (%) 32.5 27.7 30.4 32.7 EV / sales (x) 0.7 0.6 0.5 0.4 EV / EBITDA (x) 10.6 10.4 7.5 5.7 PE (x) 20.7 22.1 12.9 9.2 P / BV (x) 3.9 3.4 2.8 2.2 Net dividend yield (%) 0.9 1.0 1.0 1.0 Source: Company Data, PL Research
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September 30, 2019 1
IDEA RESEARCH APL Apollo Tubes – The Pipe(d) Piper
Other financial liabilities 1,248 1,832 2,015 2,216
Short term provisions 3 8 9 10
Other current liabilities 125 307 337 371
Current Tax Liability 164 78 86 94
Total Equity & Liabilities 21,813 27,739 31,114 36,238
Quarterly Financials (Rs m)
Y/e March Q2FY19 Q3FY19 Q4FY19 Q1FY20
Net Revenue 16,317 16,216 20,241 19,936
EBITDA 862 592 1,387 1,250
% of revenue 5.3 3.7 6.9 6.3
Depr. & Amortization 162 157 172 202
Net Interest 310 271 289 283
Other Income 19 32 28 46
Profit before Tax 410 196 954 810
Total Tax 143 68 337 289
Profit after Tax 267 129 617 521
Source: Company Data, PL Research.
September 30, 2019 19
APL Apollo Tubes
IDEA RESEARCH
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